Tight Supply Lifts China Methanol Prices, but Weak Demand Limits the Rally

China's methanol market is going through its tightest supply period in more than a decade. As of 10 September 2026, methanol stocks held at Chinese ports had dropped to 381,800 tons, the lowest level since 2013 and almost 70% below the volume recorded at the same time last year. The squeeze comes from a steep fall in imports linked to the war involving the United States, Israel and Iran, combined with production cuts decided by domestic plants earlier in the summer.

The situation marks a complete reversal from a year ago. In late 2025, Chinese port stockpiles climbed above 1.6 million tons, the highest in recent years, as Iranian plants kept shipping large volumes to China and domestic output stayed strong. Prices were weak and many inland producers were operating close to or below break-even. In January 2026, port inventories still stood at around 1.54 million tons.

Everything changed after 28 February 2026, when the United States and Israel launched military strikes on Iran and commercial traffic through the Strait of Hormuz collapsed. China is heavily exposed to this route. In 2025 the country imported about 14.4 million tons of methanol, and nearly 10 million tons of that volume came from the Middle East. Methanol sourced from Iran, either directly or through re-exports, represents more than 60% of Chinese imports. In early March, many coastal traders stopped quoting prices and methanol futures on the Zhengzhou Commodity Exchange surged by nearly 14%, hitting their daily trading limit.

A ceasefire reached in early April briefly raised hopes that shipping would return to normal, and Chinese methanol prices eased during the second quarter as some Iranian plants restarted and buyers waited for new cargoes. Relief proved short-lived. The United States imposed a naval blockade on Iranian ports on 13 April and reinstated it on 14 July after a new wave of attacks on commercial vessels, which kept Iranian methanol exports under heavy pressure.

Customs data confirm the scale of the shock. China imported 4.773 million tons of methanol between January and July 2026, down 1.707 million tons or 26.34% compared with the same period of 2025. The decline is even sharper when looking only at the war period. Imports from March to July reached 2.804 million tons, a fall of 2.071 million tons or 42.48% year-on-year. Weekly arrivals have now shrunk to around 100,000 tons.

Domestic producers have not filled the gap. From June, spot prices weakened and margins collapsed. In early July, only plants using coke oven gas as feedstock were still making money, with a margin of about 400 RMB per ton, while coal-based and natural gas-based producers were losing around 100 RMB per ton. Many plants reduced their operating rates to limit losses. On 10 September, the national operating rate stood at 82.89%, down 7.83 percentage points from its late-June peak and 1.69 points lower than a year earlier. Weekly domestic output is estimated at about 1.87 million tons, and industry sources put the resulting supply gap at roughly 90,000 tons per week.

The drawdown has hit southern China hardest. Port inventories in South China fell to 53,000 tons, a drop of 88.46% year-on-year, while stocks in East China declined by 59.31% to 328,800 tons. To compensate, methanol from the main producing regions in the northwest, such as Shaanxi, Inner Mongolia and Ningxia, is now flowing toward the eastern coast. This movement is also emptying producers' own tanks. Inventories at sample production plants stood at 297,000 tons on 10 September, down 13.32% from a year earlier.

Prices have responded strongly. Domestic methanol prices reached about 3,600 RMB per ton in early September, more than 50% above the level seen in East China a year ago. The rally has restored profitability across the industry. Coal-based producers now earn around 535 RMB per ton, natural gas-based plants about 250 RMB per ton and coke oven gas-based units roughly 1,350 RMB per ton.

However, downstream buyers are starting to push back against higher costs. Traditional uses of methanol remain weak. The operating rate of formaldehyde plants stood at only 32.53% on 10 September. Rising formaldehyde prices have increased costs for makers of wood-based panels, but the ongoing slump in the Chinese real estate sector prevents them from passing these costs on to customers. Panel producers have cut output and reduced their formaldehyde orders as a result. Demand for acetic acid is holding up better, with plants running at 85.13% and earning about 350 RMB per ton, while the fuel additive MTBE and the cooking and heating fuel dimethyl ether are running at low rates.

The biggest warning sign comes from coal-to-olefins, the largest consumer of methanol in China. These plants convert methanol into ethylene and propylene, the building blocks of plastics. Between March and May, high international oil prices gave them a cost advantage over oil-based producers and their operating rate stayed close to 80%. That advantage has now disappeared. Plants that buy methanol on the open market are losing close to 1,500 RMB per ton, and the sector's operating rate has fallen to 68.09%, down 11.46 percentage points year-on-year.

On the supply side, there is little sign of a quick recovery in shipping through the Gulf. In mid-September, the Strait of Hormuz remains effectively closed to normal commercial traffic. Only 8 vessels crossed the strait on 13 September, against a pre-crisis average of about 85 per day. Tit-for-tat attacks on tankers have continued in recent weeks, and maritime security monitors still rate the risk in the strait as severe because of drifting or uncharted mines. On 11 September, a drone attack also shut down Saudi Arabia's East-West pipeline, the kingdom's main alternative export route. Iranian and Gulf officials were expected to meet in Muscat to sign an agreement creating an Iran-Oman shipping route through the strait, but no talks are currently taking place between Tehran and Washington.

In the short term, the tight supply pattern is expected to keep Chinese methanol prices firm. Beyond that, the upside looks limited. With every production route profitable again, idle domestic plants have strong reasons to restart, and output is likely to rebound in the coming weeks once the autumn maintenance season ends. At the same time, weak demand from panel makers and heavy losses in the olefins sector are reducing consumption. Chinese analysts expect the supply gap to close gradually and prices to soften later in the year, unless the crisis in the Strait of Hormuz deepens further and cuts the remaining import flows.